Industry Update
Opinion Article25 February 2020

Past, Present And Future Of Hospitality In The US

A look back at the lodging landscape in 2020 and ahead to 2030 reveals challenges and uncertainties hoteliers must prepare for now.

By Robert A. Rauch, CHA, President of RAR Hospitality

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Rauch, CHA

The decade began in 2010 with President Barack Obama signing into law a new health care bill. In 2016, Donald Trump was elected as president in one of the greatest upsets in political history. Today, consumer confidence continues to drive economic growth in 2020 based on a very strong labor and stock market, despite marginal business confidence.

The trade dispute with China hasn't seemed to have an effect on consumer spending in the U.S., while other economies were softer in 2019. The U.S. economy expanded for a record 126th straight month in December, the longest expansion on record and perhaps ending the only decade without entering a recession.

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Lodging industry

Our industry started the decade at the bottom. 2009 was the single worst year in a long time. Occupancy levels were at record lows, average rate growth was near zero to negative and room supply was still coming on from the 2005 to 2007 growth spurt. The Great Recession had taken its toll and we could go nowhere but up. Soft brands were added, Airbnb came along, online travel agencies whipped into gear to gain market share quickly and before we knew it, a great decade of growth occurred.

2020-2030

What should we expect going forward? Risks include the budget deficit that could reduce the likelihood of sustainability of this economy and any unexpected "event." The elections of 2020 will prove to be the most divisive of all time, even more so than 2016. The real changes will occur in the fast-moving trends that we have identified as our top trends of 2020.

These trends include new privacy regulations, expanded use of artificial intelligence, digital transformation, sustainability and more. Yes, the presidential election and local races matter as they determine what we want as a nation. Major political topics include immigration and border security, foreign relations, health care, women's reproductive rights, education, the environment, guns, regulations, trade, defense, the economy and much more.

Regardless, technology will change. And it will happen quickly. Intelligent automation, moving to the cloud, cybersecurity and overall digital disruption will rule this decade. Millennials are taking over and Generation Z is right on their heels, already spending dollars on experiential travel.

More extreme weather patterns like wind, rain and high tides coupled with the need for cybersecurity are two areas we must be prepared for in the coming years. New brands are constantly being launched monthly, but the truth is, the traveler of today only knows if the hotel is well-located, clean and brand-affiliated as well as if it has or does not have a restaurant, fitness room, spa, golf course or other amenities. Many really don't care what the name is and with today's millennials and Gen Z, they may not even care if it's affiliated with a brand. If they do, it will be for loyalty points.

Amazon and/or Google will become a force to be reckoned with in the lodging distribution game. Commissions from hotels alone are low hanging fruit for them. Amazon has access to customers and has a competitive advantage in understanding customer behavior. Google owns search. They will be direct players soon enough and either one can become a game changer. It is up to us as hoteliers to ensure that a competitive OTA field means lower commissions.

Revenues are truly flat today, and with new supply that keeps occupancy levels from climbing to average rates that are up maybe 1%, it is time to consider how we will perpetuate profits. Parking revenue, resort fees (that are under potential litigation) and other miscellaneous revenues are drying up. We started working on a plan to rent out our maintenance team to locals, using our marketing team to help local entrepreneurs and make our lobbies a true center of the community. We found that we can increase beverage revenue, but the rest is a headache. An area that we are playing with now, is cleaning fees—yes, those fees that have Airbnb guests saying, hey, that $150 rate is really $223? The airlines, in essence, have done it by selling a seat and charging for everything else such as luggage and leg room.

Lastly, we must finally predict a recession—most likely, regardless of which party prevails in November, a 2021 economic correction of sorts is likely. Average rates have continuously grown over the last 10 years, but that could end. That's why we need to look at new revenue streams sooner rather than later and we need to have some baby boomers stick around to remind the millennials that recessions are a "thing." In other words, don't freak out—lowering rates is not a great way to stimulate demand, rather, value stimulates demand. Now is the time to prepare. To a great 2020-2030 and beyond!

Robert A. Rauch, CHA

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    Robert A. Rauch
    R. A. Rauch & Associates, Inc.
    Phone: +1 858 720 9500
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